Asia MEG falls to 10-month low as traders offload stocks

31 May 2013 10:45[Source: ICIS news]

SINGAPORE (ICIS)--Asia’s spot monoethylene glycol (MEG) prices fell to a 10-month low on Friday as traders cut offers to offload stocks amid worries that China will take concrete measures to tame speculation in the market in June and July, market sources said on Friday.

MEG cargoes were sold at $950-965/tonne (€732-743/tonne) CFR (cost and freight) CMP (China Main Port) on 31 May, down by $30-32/tonne from a week ago, according to ICIS.

“Speculation drives [the] volatility of MEG spot prices. Without speculations, MEG market will lose its momentum and become less attractiveness to traders,” a major regional trader said.

Traders dominate in Asia’s spot MEG market.

China’s State Administration of Foreign Exchange (SAFE) in April launched an investigation on companies involved in international trade to stipulate policies regulating re-exporting business and preventing the overuse of letters of credit (LC), according to major traders and downstream polyester makers.

This followed as questions were raised over the accuracy of China’s strong exports data in December 2012 to February 2013.

“There has been no actual impact on trading so far,” said a Ningbo-based major Chinese trader.

However, there was market talk that SAFE is to push out related policies in June and July, a Nanjing-based trader said.

Topping the list of factors that will have a major impact on trade liquidity in the MEG market is the potential restriction of foreign-exchange settlement, the Nanjing-based trader said.

The measure meant that those holding LCs of 90 days can obtain cash in their local currency only after 90 days from the issue date of the LC, instead of cashing it ahead of the stated payment period, he said.

Persistently high port inventories in China and a slowdown in polyester demand during the week are also weighing on MEG prices.

MEG inventories at Chinese ports stood at 950,000 tonnes on Friday, up by 5,0000 tonnes from the previous week.